Commonwealth Government Bill to Improve National Housing Finance

Last Thursday, 1 March 2018, the House of Representatives passed the National Housing Finance and Investment Corporation Bill 2018(Cth) (the “Bill”). This Bill, introduced alongside the National Housing Finance and Investment Corporation (Consequential Amendments and
Transitional Provisions) Bill 2018, proposes to establish the National Housing Finance and Investment Corporation (NHFIC), a Commonwealth corporate entity with the goal of improving housing outcomes
for Australians.

Mr Sukkar, MP, stated in the second reading speech to the House of Representatives:

“This bill establishes the National Housing Finance and Investment Corporation (the
NHFIC), a new independent corporate Commonwealth entity which will improve housing
outcomes for Australians, particularly vulnerable Australians who need social and
affordable housing.

The finance corporation, which is modelled on successful initiatives in the United
Kingdom, will strengthen efforts to increase the supply of housing by encouraging
investment in housing, particularly in social and affordable housing. It will contribute
to developing the scale, efficiency and effectiveness of the community housing sector
and, importantly, will provide loans, grants and investments that complement, leverage
and support Commonwealth, state and territory activities relating to housing.

Housing is critical to the social and economic wellbeing of Australians and the economy
as a whole. It can impact on employment, education and health outcomes, and it is
a significant driver of investment, productivity and economic growth. It's also the
main savings vehicle for the majority of Australians.

While housing is primarily a state responsibility, the Commonwealth government nonetheless
has an important role to play when it comes to addressing housing affordability and
securing better outcomes for Australians, particularly the most vulnerable.”

Background and Government Response

One of the greatest challenges for people living in Australia is competing in the
housing market, particularly in major metropolitan areas. This challenge is the result
of the swell in demand for housing which in turn has increased housing prices where
supply has not been able to keep up with the needs of the growing population. The
response of the Australia Government to this challenge was highlighted in the explanatory
memorandum, pp 7-8:

“On 7 January 2016, the Australian Government announced the establishment of an Affordable
Housing Working Group (‘the Working Group’) following a request from Treasurers at
the CFFR meeting in October 2015 for further work on housing affordability.

The Working Group focused primarily on investigating ways to boost the supply of affordable
rental housing through innovative financing models. The Working Group comprised members
of the Commonwealth Treasury and Department of Social Services as well as members
from the New South Wales, Victorian and Western Australian governments.

The Working Group’s report, Innovative Financing Models to Improve the Supply of Affordable Housing, recommended the establishment of a bond aggregator taskforce to design a proof of
concept for a bond aggregator model to provide for greater private and institutional
investment in affordable housing. The Treasurers at the CFFR meeting agreed to the
recommendations of the report, including the establishment of an expert taskforce
to design a proof of concept for an affordable bond aggregator to report their findings
to Heads of Treasuries by mid-2017.

In the 2017-18 Budget, the Australian Government announced the establishment of the
NHFIC to operate a bond aggregator and the NHIF. The Government released a Consultation
Paper on the establishment of the NHFIC in September 2017 and feedback from that process
has been incorporated into the Bill.

This Bill gives effect to elements of the Government’s Reducing Pressure on Housing
Affordability plan announced at the 2017-2018 Budget to establish the NHFIC. The NHFIC
is a new independent corporate Commonwealth entity dedicated to improving housing
outcomes, with broad functions to enable it to administer the NHIF and Bond Aggregator.”

The Bill

As part of the 2017-2018 Budget, a comprehensive housing affordability plan was announced
by the Australian Government. This plan includes providing $1 billion through the
National Housing Infrastructure Facility (NHIF) which will be put in place with the
purpose of financing critical infrastructure to assist in increasing the supply of
affordable housing.

The Bill was released as an exposure draft, open for consultation from 12 January
2018 to 22 January 2018, and then introduced into the House of Representatives on
15 February 2018.

The Bill proposes to create the legislative mechanism for formulating the NHFIC (Part
2) and to improve housing outcomes for Australians, by (section 3):

strengthening efforts to increase the supply of housing; and

encouraging investment in housing (particularly in the social or affordable housing
sector); and

providing finance, grants or investments that complement, leverage or support Commonwealth,
State or Territory activities relating to housing; and

contributing to the development of the scale, efficiency and effectiveness of the
community housing sector in Australia.

Consultation

The next stage in the Government’s national housing finance initiative is the development
of an Investment Mandate, currently in draft stages with consultations closing on 9 March 2018. The draft
investment mandate, to be given effect under the Bill, proposes to provide details
of the NHFIC’s activities. As per the consultation page on the Australian Treasury
website, key aspects of the Investment Mandate are:

It provides directions about the two core functions of the NHFIC which will support
investment in Australian housing. The NHFIC’s core functions are:

the establishment and operation of an Affordable Housing Bond Aggregator to provide
finance to registered community housing providers by aggregating their lending requirements
and issuing bonds to institutional investors; and

the establishment and operation of the National Housing Infrastructure Facility to
provide grants and finance to support the creation of housing-related infrastructure.

The IM provides detail on the NHFIC, specifically eligible projects and project proponents,
the financing mechanisms and lending criteria related to its activities.

It authorises the NHFIC to provide support to registered community housing providers
to develop their financial and management capabilities.

It states that, of the $1 billion allocated to the NHFIC’s Infrastructure Facility
function for loans, investments and grants, a combined cap of $175 million applies
to the infrastructure grants and capability building activities.

The IM provides that up to $150 million of NHFIC’s funding may be allocated to provide
an interim ‘warehouse facility’ that extends bridging finance to registered community
housing providers until a bond issuance can be made through the Bond Aggregator function.

It also outlines various general governance matters and sets requirements in relation
to the maintenance of funds, benchmark rates of return and risk management.

TimeBase is an independent, privately owned Australian legal publisher specialising
in the online delivery of accurate, comprehensive and innovative legislation research
tools including LawOne and unique Point-in-Time Products. Nothing on this website should be construed as legal advice and does not
substitute for the advice of competent legal counsel.

Sources:

National Housing Finance and Investment Corporation Bill 2018 and explanatory material available on TimeBase's LawOne service.